Difference Between ITR 1 and ITR 2: Which Form Should You File in 2025?

Understanding the difference between ITR 1 and ITR 2 is essential for every Indian taxpayer to ensure hassle-free income tax return filing online.  The right form choice depends heavily on your income sources, financial profile, and compliance requirements. Knowing the exact difference between ITR 1 and ITR 2 will save you from filing errors, penalties, and delays in refunds.

Whether you are a salaried individual or have multiple income sources including capital gains, this detailed guide will help you decode the difference between ITR 1 and ITR 2, giving you clarity on should I file ITR 1 or ITR 2. With the tax season approaching, getting this right ensures smooth filing and peace of mind.

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What is ITR 1?

To fully grasp the difference between ITR 1 and ITR 2, let’s begin with ITR 1 — the simplest of the Income Tax Return forms, also known as SAHAJ. This form is specifically designed for resident individuals with a straightforward income profile.

ITR 1 is suitable when:

• Your total income does not exceed ₹50 lakh in a financial year.
  
• Your income consists only of:
  
  • Salary or pension
    
  • Income from one house property (excluding cases with brought-forward losses)
    
  • Income from other sources like interest earned from savings accounts, fixed deposits, or family pension
    
  • Agricultural income not exceeding ₹5,000
    

This form is not applicable for individuals who:

• Have income from more than one house property
  
• Have capital gains (short-term or long-term)
  
• Have foreign income or own foreign assets
  
• Are directors in a company or hold unlisted equity shares
  
• Have income from business or profession

For salaried individuals, it’s important to ensure compliance through accurate filing and to be aware of company registration fees in India if you plan to start a business in the future.

ITR 1 is most often used by salaried individuals, which is why it frequently appears in searches like “ITR 1 vs ITR 2” and “Which ITR form should I choose as a salaried individual?”

By understanding who qualifies for ITR 1, it becomes easier to appreciate the difference between ITR 1 and ITR 2 for accurate and compliant filing.

What is ITR 2?

The difference between ITR 1 and ITR 2 becomes more evident when we look at the comprehensive nature of ITR 2. This form caters to individuals and Hindu Undivided Families (HUFs) not having income from business or profession but having more complex or high-value sources of income.

ITR 2 is the correct form for you if:

• Your income is more than ₹50 lakh per financial year
  
• You have capital gains, either short-term or long-term, from sale of:
  
  • Equity shares or mutual funds
    
  • Real estate property
    
  • Bonds or securities
    
• You have income from more than one house property
  
• You are earning foreign income or holding assets abroad
  
• You are a Director in a company or own unlisted equity shares
  
• You have agricultural income exceeding ₹5,000
  
• Your income from dividends exceeds ₹10 lakh
  

This form is also meant for Non-Resident Indians (NRIs) and Resident but Not Ordinarily Residents (RNORs) — a major distinction in the ITR forms comparison landscape.

For example, if you’re a salaried individual with additional income from selling mutual funds or owning a property overseas, you must use ITR 2. This real-world scenario illustrates why understanding the difference between ITR 1 and ITR 2 is critical.

A common confusion arises in the case of salaried vs capital gains income. Many assume that being salaried means ITR 1 will always apply — but once capital gains are added to your income mix, ITR 2 becomes mandatory.

Difference Between ITR 1 and ITR 2 — Key Points 

To simplify the difference between ITR 1 and ITR 2, here are the main points you need to remember:

• Income Limit: ITR 1 is for income up to ₹50 lakh, whereas ITR 2 has no upper income limit.
  
• Income Sources: ITR 1 covers salary, pension, one house property, and basic interest income; ITR 2 includes capital gains, multiple house properties, foreign assets, and dividend income.
  
• Agricultural Income: Up to ₹5,000 for ITR 1; more than ₹5,000 must file ITR 2.
  
• Foreign Assets and Income: Allowed only in ITR 2, not in ITR 1.
  
• Residential Status: ITR 1 is for resident individuals only, while ITR 2 is applicable to resident and non-resident individuals.
  
• Capital Gains: Only limited capital gains under Section 112A up to ₹1.25 lakh are allowed in ITR 1; all capital gains must be reported in ITR 2.

Salaried vs Capital Gains — Which Form to Use?

The most common question revolves around ITR 1 vs ITR 2 for salaried individuals who also earn capital gains. Here’s the crux:

• If you are purely salaried with simple income sources, filing ITR 1 is your go-to option.
  
• If you earn capital gains, have multiple properties, or foreign income, you must file ITR 2.
  
• Capital gains include profits from the sale of stocks, mutual funds, and property sales.
  

Understanding this difference between ITR 1 and ITR 2 ensures you file correctly without facing tax notices or rejections.

Should I File ITR 1 or ITR 2?

Asking should I file ITR 1 or ITR 2 is common during tax season. Here’s a quick guide:

• Choose ITR 1 if your income is salary, pension, one house property, and minor other sources.
  
• Opt for ITR 2 if your income includes capital gains, foreign assets, multiple properties, or agricultural income above ₹5,000.
  
• If you’re unsure, reviewing your income heads against the eligibility criteria above helps.
  

Always remember, filing the right form based on the difference between ITR 1 and ITR 2 is critical for error-free filing.

Common Errors to Avoid

• Filing ITR 1 when you have capital gains or foreign income
  
• Not reporting agricultural income above ₹5,000
  
• Ignoring foreign assets declaration in ITR 1
  
• Delayed filing or not revising if you filed the wrong form initially
  

Being aware of the difference between ITR 1 and ITR 2 helps avoid these common pitfalls.

How to File ITR 1 and ITR 2 Online

Both forms can be filed online through the Income Tax Department’s e-filing portal. Steps include:

• Downloading the respective utility or preparing online
  
• Filling in all income and deduction details carefully
  
• Uploading Form 16, capital gains statements, and other supporting documents
  
• Verifying through Aadhaar OTP, EVC, or net banking
  
• Submitting before the due date
  

Filing online is user-friendly, and choosing the correct form based on the difference between ITR 1 and ITR 2 ensures smooth processing.

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Conclusion

The difference between ITR 1 and ITR 2 is primarily based on your income sources and eligibility criteria. Filing the right form not only ensures compliance but also speeds up refunds and avoids legal hassles. Whether you are a salaried employee or an individual with capital gains and foreign income, understanding the difference between ITR 1 and ITR 2 is the first step to hassle-free income tax filing in 2025.t miss deadlines. File ITR 5 the smart way with Finodha.day.

Frequently Asked Questions (FAQs)

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More Information: https://taxinformation.cbic.gov.in/

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